The Changing of the Guard at Pfizer: What Does It Mean?

By Patricia Van Arnum - DCAT Editorial Director

October 3, 2018

Pfizer announced that Ian Read, current Chairman and CEO of Pfizer will step down as CEO January 1, 2019 to be succeeded as CEO by Albert Bourla, the company’s current chief operating officer. Does the changing of the guard mean a shift in strategy? DCAT Value Chain Insights takes an inside look.

Inside the move

In stepping down as CEO, Read will transition from his current role as Chairman and CEO to Executive Chairman of Pfizer’s Board of Directors. Read was named CEO of Pfizer on December 6, 2010, and Chairman of its Board of Directors on December 12, 2011. His tenure is marked by how the company responded to the loss of key patent expiries and its subsequent moves, both organically to build its pipeline and merger and acquisitions (M&A), including the mega deals of proposed acquisitions of Allergan and AstraZeneca that did not materialize. Going forward, Bourla will be tasked with building the company’s pipeline and revenues and will face strategic decisions on the future of the company’s established products and consumer healthcare businesses.

The then and now

Ian ReadChairman and CEO Pfizer

In Read’s first full-year as CEO in 2011, the company posted biopharmaceutical product revenues of $57.7 billion, and Read faced his first major challenge: dealing with the loss of patent exclusivity for the company’s top-selling product, Lipitor (atorvastatin), an anti-cholesterol drug. In 2011, worldwide revenues from Lipitor were approximately $9.6 billion, or approximately 14% of total Pfizer revenues. The company lost market exclusivity in the US for Lipitor in November 2011 and in Europe in November 2011 although pediatric exclusivity extended market exclusivity through May 2012 in major European markets. In 2011, Pfizer had 12 blockbuster biopharmaceuticals (defined as drugs with sales of $1 billion or more), which accounted for 56% of the company’s total biopharmaceutical revenues in 2011 (see Table I). In 2017, the company reported biopharmaceutical product revenues of $52.546 billion and had nine drugs defined as blockbuster products (see Table II), which accounted for 46% of the company’s biopharmaceutical product revenues.

Eliquis’s sales includes alliance revenues and direct sales. Sales of Lyrica and Viagra include sales from both the Innovative Health and Essential Health segments.

Source: Pfizer company information

The deals that were and weren’t

Although completing several deals, notably the $17-billion acquisition of Hospira, a manufacturer of biosimilars and generic injectable drugs, in 2015, the $14-billion acquisition of Medivation, a company developing small-molecule oncology drugs, in 2016, and the spin-off of its animal-health business into a separate company, Zoetis, Read will be most remembered for two mega deals that did not come to fruition: a proposed $118-billion acquisition of AstraZeneca in 2014 and a proposed $160-billion acquisition of the specialty pharmaceutical company, Allergan in 2016.

The AstraZeneca and Allergan deals shared two significant characteristics: both would have been the largest deals in pharmaceutical industry history and both shared an interest by Pfizer to gain a more favorable tax structure through corporate inversion, a practice by which a US-based multinational company restructures so that the US parent is replaced by a foreign corporation as a means to achieve a lower tax rate. The use of corporate inversion was placed under scrutiny by the US government and the uncertainty of whether the US government would limit its use was a contributing factor for ending both deals.

In April 2016, Pfizer and Allergan called off their proposed $160-billion merger citing the US Department of Treasury’s issuance of temporary and proposed regulations to further reduce the benefits of and limit the number of corporate inversions, a move that the companies said created an adverse tax-law change. Pfizer’s proposed $160 billion merger with the Dublin, Ireland-based Allergan, which the companies announced in November 2015, would have been the largest merger in the history of the pharmaceutical industry. Pfizer’s decision to pursue Allergan followed its interest in acquiring AstraZeneca in 2014, the other mega merger for Pfizer that did not come to fruition. Pfizer announced in late May 2014 that it would not make a formal offer to acquire AstraZeneca following AstraZeneca’s decision to reject Pfizer’s non-binding $118-billion proposal. Pfizer’s interest in acquiring AstraZeneca was to build its pipeline and commercial portfolio, but it also had a financial component in establishing a new UK-incorporated holding company of the proposed combined company to provide a lower corporate tax rate through corporate inversion. The practice of corporate inversion has since been de-emphasized with US tax reform, which was signed into law in December 2017, and which lowered the corporate tax rate in the US from 35% to 21%.

What is next for Pfizer

Read is handing the reins to Bourla, who will be heading a newly re-organized Pfizer, which will take place at the beginning of the company’s 2019 fiscal year and positions the company as it transitions to higher growth expectations post 2020. Beginning in 2019, Pfizer will be organized into three businesses; an Innovative Medicines business, an Established Medicines business, and a Consumer Healthcare business. Read said the re-organization, which was announced earlier this year (July 2018), relates to the company’s expectations for higher growth post 2020 as the company faces significant revenue impact from the loss of market exclusivity for Lyrica (pregabalin), a drug to treat nerve pain, in the US, which is expected to occur in or after December 2018. Lyrica was Pfizer’s second top-selling drugs in 2017 (see Table II) with global sales of $5.065 billion.

Under the new structure to take effect in 2019, the Innovative Medicines business will include the current Pfizer Innovative Health business units as well as biosimilars and a new hospital business unit for anti-infectives and sterile injectables. Pfizer will also incorporate its biosimilar portfolio into its Oncology and Inflammation & Immunology business units. Pfizer is currently organized into two main business: Innovative Health, which as the name implies includes the company’s innovator-based drugs, vaccines, and consumer healthcare segments and its Essential Health segment, which includes its legacy products (i.e., products late in the product life-cycle, generics, and biosimilars).

The new Established Medicines business will include off-patent branded drugs and generics and operate with substantial autonomy within Pfizer, the company said. The business will include the majority of Pfizer’s off-patent solid oral dose legacy brands, including Lyrica (pregabalin), a drug to treat nerve pain, Lipitor (atorvastatin), an anti-cholesterol drug, Norvasc (amlodipine), an antihypertensive drug, and Viagra (sildenafil), a drug to treat erectile dysfunction, and certain generic drugs. This business will operate in all regions of the world. The business will have distinct and fully dedicated manufacturing, marketing, regulatory, and with some exceptions, enabling functions, which will enhance its position to operate as a stand-alone business within Pfizer. Following the impact of the expected loss of exclusivity of Lyrica in the US in or after December 2018, Pfizer said the Established Medicines business has the potential to generate sustainable modest revenue growth.

The Consumer Healthcare business will include all of Pfizer’s over-the-counter medicines. It will continue to operate relatively autonomously with dedicated manufacturing and regulatory capabilities. Pfizer said at the time of its reorganization announced in July 2018 that it continues to evaluate strategic alternatives for this business and expects to make a decision in 2018.

Strategic considerations for the new CEO

In taking over the helm at Pfizer in 2019, Bourla will be leading the newly re-organized Pfizer but also will face several key decisions, notably for the company’s Established Medicines and Consumer Healthcare businesses.

The spinout of its Consumer Healthcare business from its Innovative Health Segment into a stand-alone business is consistent with Pfizer’s previously announced plans to evaluate strategic alternatives for the business. In October 2017, Pfizer announced that it was reviewing strategic alternatives for its Consumer Healthcare business. It said that a range of options will be considered, including a full or partial separation of the Consumer Healthcare business from Pfizer through a spinoff, sale, or other transaction, or that it ultimately determines to retain the business.

Another factor to consider in Pfizer’s reorganization is whether the establishment of an Established Medicines business unit, which includes products late in their product lifecycle and soon-to-lose patent protection or products that have lost patent protection, may portend the eventual separation of that business. The placement of Pfizer’s biosimilars business, which the company enhanced through its $17-billion acquisition of Hospira in 2015, to its Innovative Health business in the new reorganization, is consistent with Pfizer’s stated research and development (R&D) priorities but also would remove that piece from its Established Medicines unit. Under the new reorganization, Pfizer said the Established Medicines Unit will operate as a stand-alone entity with dedicated manufacturing, marketing, regulatory, and other enabling functions. In 2017, Pfizer recorded sales of $1 billion or more for only one product in its Essential Health business: Lipitor (atorvastatin), an anti-cholesterol drug, which posted 2017 revenues of $1.9 billion and which accounted for 9% of the Essential Health’s revenues in 2017. Pfizer decided not to separate its Essential Health business several years ago, and the question going forward is whether Pfizer will follow a similar path for its Established Medicines business unit or may decide on strategic alternatives for the business.

Unlike Read, Burla will be facing a more muted impact from the loss of patent exclusivity. From 2010 to 2015, Pfizer had to deal with an approximate $25 billion in revenue declines resulting from loss of exclusivity (LOE), according to information from a September 13, 2018 investor presentation, which was more than twice the industry average. Pfizer will be facing approximately $2 billion in LOE in 2018, 2019, and 2020, with the Lyrica LOE driving those numbers in 2019 and 2020.

Pfizer’s incoming CEO

As chief operating officer, Bourla oversees the company’s commercial, strategy, manufacturing and global product development functions and he will bring that expertise in new product development to his new role as CEO beginning in 2019. Prior to being named chief operating officer, he was the Group President of Pfizer Innovative Health, responsible for the Consumer Healthcare, Inflammation & Immunology, Internal Medicine, Oncology, Rare Disease and Vaccines business groups. He also created the Patient and Health Impact group, which was dedicated to developing solutions for increasing patient access, demonstrating the value of the company’s innovations and ensuring broader business model innovation. Overall, he has over 25 years of experience with Pfizer and has held a number of senior global positions across a range of markets and disciplines. Previously, he was the Group President of Pfizer’s Global Vaccines, Oncology and Consumer Healthcare business, where he was instrumental in building a strong and competitive position in oncology and expanded the company’s position in vaccines. Before that, he was President and General Manager of Pfizer’s Established Products business, where he led the development and implementation of strategies and tactics related to Pfizer’s off-patent portfolio (including legacy brands and generics).

As with any pharmaceutical company, Pfizer’s future resides with its pipeline in addition to its commercial products. Pfizer’s research and development priorities include biosimilars; inflammation and immunology; metabolic disease and cardiovascular risks; oncology; rare diseases; and vaccines, according to the company’s 2017 annual filing with the US Securities and Exchange Commission. As of January 30, 2018, Pfizer had 87 projects in various stages of R&D: 30 products in Phase 1; 18 in Phase II; 29 in Phase III; and 10 in registration under regulatory review.